This means that an extreme weather or disease event in one location can disturb or even destroy a huge amount of global FCOJ supply. In the 1950s, the orange juice industry was revolutionized by the development of frozen concentrated orange juice (FCOJ). If the price of orange juice rises to say 150 cents at the time of expiry, the option will expire worthless (as the current price is higher than strike price of the put option). Through processing, freezing, and flavoring agents, orange juice became the world’s favorite fruit drink and the commodity that it is today. Short options do require margin capital. Other commodities that trade on commodities exchanges include silver, platinum, rice, sugar, orange juice, oats, cattle, corn, copper, cocoa, soybeans, and coffee. Both countries are impacted by hurricanes and unseasonable freezing and frosts. The orange farmer selects the option contract with strike price of 135 cents and the expiry in June, which is when his crop will be ready. These weather events impact the orange crop, which impacts FCOJ prices and options prices. She can square it off at the converging price of 150 cents, as gaining (150 – 135) = 15 cents from the futures position. Because oranges are perishable, the futures contract tracks frozen concentrated orange juice (FCOJ). No. Oranges are no exception. While marketmaking, arbitrage, and speculation continue to remain the heart of trading, hedging is the primary purpose for which so many products continue to get enabled for trading on leading global exchanges. a revolution in orange juice extraction VSS – Vertical Squeezing System, a unique internationally patented system able to squeeze the oranges separating the bitter oils of the peel from the juice, maximizing the yield and avoiding waste, with the highest standard of cleanliness and hygiene. Scroll down this page and follow the links. The ICE Exchange has FCOJ A options available for trading across the cities of New York, London and Singapore, ideally covering all geographical locations across APAC, Europe, and the United States during the 24-hour cycle. The production of oranges is very sensitive to weather. For a 15,000 pounds contract, he will receive $19,650. This comes at the cost of the option premium of 4 cents/pound. Fruit are washed, then they are positioned between two cups that cut the peel and press (squeeze) the fruit simultaneously. Orange Juice Put Option Calculations at Expiration. To gain price protection, the processor can buy one orange juice call option. CFDs allow traders to speculate on the price of FCOJ. Investing in Orange Juice through Future Market Contracts, What to Consider When Buying Put Options in Stock Trading. Orange juice options on ICE futures exchange are taken as examples cited throughout the article. She will buy her oranges at market rates of 137 cents. Orange juice trading has become popular globally and trading volumes continue to increase. FCOJ traders must carefully monitor climate conditions in key growing regions; Growers in Florida harvest 96% of the crop by hand using wooden ladders and canvas pick sacks. One such futures contact is worth 15,000 pounds of concentrated orange juice solids. The orange and orange juice demand and supply report from U.S. Department of Agriculture covers estimates across all orange-producing regions in the United States and abroad. The physical settlement of one contract equal to 15,000 pounds of orange solids is done through delivery in drums or tanks. A common grocery orange that comes in several varieties including Cara cara, Bahia and dream navel. He will get the short futures contract at 135 cents and can square it off at 133 cents, giving him a profit of 2 cents. She paid the upfront option premium of 4.5 cents taking net profit to 10.5 cents/pound. I have been a proud Booster Juice Franchise Partner for the last 6 years. Clicking on the links column icons (Q C O) displays the quotes, charts, options and historical market data for each Futures contract - as well as the Orange Juice Futures Cash. The VanEck Vectors Agribusiness ETF focuses on investing in the stocks of companies that operate in agriculture. In all the possible scenarios, using a put option of orange juice contracts has provided the farmer dual benefits. Commodities Analysis by Investing.com (Barani Krishnan/Investing.com) covering: Orange Juice Futures. Commodities Analysis by Investing.com (Barani Krishnan/Investing.com) covering: Orange Juice Futures. His net cost will be 114.5 cents * 15,000 pounds = $17,175. Among its top holdings, you'll find companies in the farm equipment, seed and fertilizer, animal health, and food transport and processing industries. Orange juice option traders should be aware of these dependencies. A soft commodity is a grown agricultural commodity such as coffee, cocoa, sugar, and fruit. Around 98 percent of U.S. oranges come from Florida, where the crop is susceptible to extreme weather events like hurricanes or unexpected cold snaps that can wipe out the entire season’s crop. The two top ETFs in the agriculture space stand out from their peers by a wide margin, but they take very different approaches to the sector. Ideally, either futures or options can be used for hedging, speculation, or arbitrage. Orange juice futures CFDs are quoted in US dollars per 100 pounds (1 CFD includes 100 pounds, 1 lot contains 800 of 100-lbs equivalent juice … Apart from hedging scenarios, traders actively make speculative bets on orange juice contracts to benefit from price changes and arbitrage opportunities. Orange Juice ICE Futures Contract. Read Investing.com (Barani Krishnan/Investing.com)'s latest article on Investing.com UK. The buyer will not be able to exercise the option and will not get the long futures contract. His net cost will be 139.5 cents * 15,000 pounds = $20,925. Investing in Orange Juice through Future Market Contracts. Hedging is accomplished by derivative products like futures and options which can be efficiently used by producers as well as consumers to accomplish risk management. Orange juice is largely produced for human consumption. Consumers could stop viewing orange juice as a health drink and move on to other beverages, as has been happening in the United States. His net cost will be 134.5 cents * 15,000 pounds = $20,175. Because oranges are perishable, the futures contract tracks frozen concentrated orange juice (FCOJ). It is a staple on breakfast tables the world over, and is also used as a cooking ingredient in many countries’ cuisines. A popular way to invest in orange juice is through the use of a contract for difference (CFD) derivative instrument. Apart from the above listed factors which affect the orange spot prices, orange juice option trading is also impacted by factors specific to option pricing models - exercise or strike price, time to expiry, risk free rate of return (interest rate), and volatility. Here is the volatility graph as available from ICE exchange report (Source: CRB-Infotech): Such varying volatility leads to high volatility skew, which makes orange juice option contracts suitable to trade ratio spreads. -Cut and squeeze the juice of the lemon into your strained juice. However, a clear advantage long options have over futures is that long option positions don’t need margin money or a daily mark-to-market like futures. Interest as well as diversification requirements have led to traders looking beyond the ordinary security classes of equities, bonds, and plain-vanilla commodities. Deducting the 4 cents he paid as option premium, his net sale price is 131 cents/pound (133 + 2 - 4 = 131 cents/pound). A bull spread is a bullish options strategy using either two puts or two calls with the same underlying asset and expiration. Example of Using Orange Juice Options for Hedging. Brazilian orange juice companies used this cash influx to come into the U.S. and buy out Florida's production facilities, making Brazil a financial backer of much of America's orange juice. A stock option gives an investor the right, but not the obligation, to buy or sell a stock at an agreed upon price and date. Orange juice is one of the few actively traded contracts in the futures markets that’s based on a tropical fruit. Get detailed information on the TR/CC CRB Orange Juice including charts, technical analysis, constituents and more. Breaking News. A must be filled (MBF) order is a trade that must be executed due to expiring options or futures contracts. Multiple financial instruments, like futures and options, are available for trading orange juice. For a 15,000 pounds contract, he will receive $21,900. He can then use that futures contract to take one of several actions: trade (sell/buy) the futures contract, exchange the contract for physical orange juice, or roll over the contract to the next term futures contract. Already America’s favorite breakfast staple along with eggs, bread and ham, orange juice won new love from commodity investors through the height of their stay-at-home as it handily beat oil, copper and corn to deliver double-digit gains on the year.. Our commodity experts created two sets of guides. Start trading with IFC Markets We are ready to support you with any kind of questions, 24 hours a day. Plain Celery Juice In A Blender Recipe. ... carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed. If the damage from bad weather turns out to be less than expected, prices can retrace back to where they started. The ICE (Intercontinental Exchange) Orange Juice futures contract, tracks the movement of frozen concentrated orange juice that is delivered to a regulated Intercontinental Exchange delivery points, in Florida, New Jersey, and Delaware. Aside from home gym, video conferencing and delivery services, a winner in commodities may be orange juice. The current price of one unit of FCOJ is 135 cents. Orange juice options traders should also follow related news items specific to orange juice trading from popular market and news data providers like Bloomberg. Long options also limit the losses (capped to option premium paid), while futures have unlimited loss potential on both long and short positions. In fact, the majority of oranges for orange juice are grown in two locations, Florida and Brazil. View the futures and commodity market news, futures pricing and futures trading. One such futures contact is worth 15,000 pounds of concentrated orange juice solids. Since this month began, juice prices have picked up another 1.4% on production concerns. Being one of the world's most popular fruit juices, orange juice trading attracts a variety of market participants which include the farmers, processors, storage-houses, market makers and arbitrageurs. He will sell his orange crop at market rates of 133 cents. An American option is an option contract that allows holders to exercise the option at any time prior to and including its expiration date. The processor is concerned that orange prices may rise, so he wants to limit his purchase price to a maximum of about 140 cents/pound. These futures are traded in the Intercontinental Exchange. Drink immediately for the best benefits or store in a large mason jar with a lid in the refrigerator. Realistic calculations are provided in following sections. The farmer is nervous about a price drop in oranges in near future, so he wishes to secure the minimum sale price of oranges (to say around 130 cents/pound) for when his crop is ready. However, he will be able to sell the orange crop at market rates of 150 cents per pound. They are also a little easier on the wallet when it comes to commissions and fees. She can buy oranges at the market price of 150 cents, taking the total buy price to 139.5 cents/pound (150 – 10.5 = 139.5 cents/pound). Futures/Commodities Trading Strategy & Education. How Are Orange Juice Options Different from Futures? In anticipation of the winter freeze damaging the orange crop and reducing supply, prices often go up in November. His risk is limited on the downside with a guarantee of minimum price level (131 cents), plus he is able to benefit from the upward price moves. Brazil tops the orange-producing nations list followed by the United States. This price spike can reverse in December and January once the extent of freeze damage becomes clear. Ingredients-1 bunch of organic celery, ends and leaves chopped off, washed and chopped -1/2 cup water. These two countries are the most influential markets for determining international orange prices. The lockdowns may be over, but not for orange juice. Allowed countries of origin for oranges are the United States, Brazil, Costa Rica, and Mexico. Orange Juice Futures Contracts The table below presents the last, change, open, high, low and previous close for each Orange Juice Futures Futures CFD contract. The farmer is looking for a hedge or price protection on his crop. If the price of orange juice increases to say 150 cents/pound, the long orange juice call option will come in-the-money and will be exercised. Adding the 4.5 cents per pound she paid as the call option premium, her net buy price will be 114.5 cents per/pound (better than his expected level of 140 cents/pound). Although orange juice remains primarily an ingredient in the composition of low-juice drinks, the annual growth of volumes sold locally has been more than 20 % in the past 10 years. A long position conveys bullish intent as an investor will purchase the security with the hope that it will increase in value. Marketmakers also make an important contribution by offering sufficient liquidity and tight spreads in the options market. To trade orange juice options, one needs a commodity trading account with regulated brokers who have authorized membership with the respective exchange. To do this, he can buy one orange juice put option contract. Read Investing.com (Barani Krishnan/Investing.com)'s latest article on Investing.com The NYBOT includes two versions of the FCOJ contract: one that tracks the Florida/Brazil oranges (FCOJ-A) and another one based on global production (FCOJ-B). If the price of orange juice stays around the same levels (say at 133 cents) at the time of expiry, the option will get exercised. Aside from home gym, video conferencing and delivery services, a winner in commodities may be orange juice. The ICE exchange report (Source: CRB-Infotech) provides the following illustration: Traders should also be aware of how changes in consumption habits can affect orange juice prices. On the other side, let us consider an orange juice processor who must buy one unit of frozen concentrated orange juice in six months. What is an Orange Juice Options Contract? Looking for Orange Juice: How to make and bottle your own homemade canned orange juice in 2020? This article discusses options trading on orange juice contracts, trading scenarios, orange juice trading markets and participant profiles, the risks, rewards, and how the determining factors impact option prices for orange juice trading. Once the hurricane passes, prices will adjust to reflect the actual damage suffered by the crop. Organic oranges have the same nutritional values and calories as commercial oranges 1 . The hurricane season common in the Florida region, for example, can have a significant impact on the prices of oranges both on the spot market and in the futures market. Start trading with IFC Markets We are ready to support you with any kind of questions, 24 hours a day. For simplicity, all the below examples use one unit of frozen concentrated orange juice. The upfront option premium cost is 4.5 cents per pound (4.5 cents X 15,000 pounds = $675). An orange farmer expects his crop (1 unit of FCOJ, or 15,000 pounds) to be ready for sale by June (in six months). The peel acts as a natural barrier and, as long as you don’t eat the peel or use it in recipes, you won’t ingest the chemicals that coat the outside of the orange. By paying a fraction of the cost in the form of an option premium, the producer and consumer can effectively protect the downside risk and yet keep the upward profit/saving potential high. The orange juice maker will get the long futures contract at a predetermined 135 cents and can square it off at 137 cents, giving her a profit of 2 cents/pound. They serve as a juice price benchmark and provide provide opportunities for portfolio diversification and hedging. Frozen concentrated orange juice futures had their best rally in four months in October, gaining 3.7%, as adverse weather hit citrus groves in Florida. Orange juice futures hit record highs last week, as frozen concentrated juice rose to to $2.2365 a pound, a 50% climb so far in 2016. Government policies, local labor laws, and international trade developments can impact orange production and supply. Those who are hell-bent on green juice will have to shell out a little more for a cold-press juice extractor. Brazil also suffers from droughts from May to June which can affect the orange crop. Deducting the 4 cents he paid as option premium, his net sale price will be 146 cents/pound (better than his expected level of 130 cents/pound). Brazil is by far the largest producer of oranges, although the United States — primarily Florida — is also a major player. Nor does any citrus juice company. Ratio spreads using options fits those instruments which have high volatility skew (i.e., high levels of variations in volatility between ITM, ATM and OTM options). The margin for growth is extremely wide given the present consumption of around one third of a litre per capita. Orange Juice Call Option Calculations at Expiration: In this case as well, using orange juice options guarantees a maximum capped buy price in all scenarios, with the benefit of lower buy price in case of market price declines. Here are the contract specs for both: Oranges are widely grown in the western hemisphere, particularly in Florida and Brazil. This volatility is reflected in orange options valuations. Orange juice has been a highly volatile soft commodity in recent years, making it a high-risk trading asset. If the price of orange juice declines to 110 cents at the time of expiry, the option will expire worthless (as the current price is lower than strike price of call option). As daily record highs in US coronavirus cases bring us closer to the grim prospects of Lockdown 2.0, products, services and markets best equipped for the ordeal will thrive. The farmer will not be able to exercise the option and will not get the short futures contract. The buyer will get the long futures position at 135 cents. Aside from their juice, oranges are used for their peels which can be turned into scented oil for candles and perfumes, as well as for their flesh which is extremely rich in vitamin C. American Options Allow Investors to Exercise Early to Capture Dividends, If the price of orange juice declines to 110 cents per pound, the long orange juice put option will come. However, she will be able to buy the oranges at the market rate of 110 cents per pound. This particular form is suitable for storage and fits one of the criteria for inclusion in the futures arena: that the underlying commodity be deliverable. This futures contract will give him the right to sell the oranges at this predetermined price (135 cents/pound X 15,000 pounds=$20,2500). Soft Commodities, which include cotton, cocoa, orange juice, coffee, sugar, are now finding place in trading portfolios of active market participants as an alternate class of tradable securities. This means that if an orange juice option contract expires in-the-money (ITM), the buyer of the orange juice call/put option will get the right to enter into a long/short orange juice futures contract. Currently, frozen concentrated orange juice futures contracts trade on the ICE exchange. OJ00 | A complete Frozen Concentrate Orange Juice Continuous Contract futures overview by MarketWatch. The value of a CFD is the difference between the price of FCOJ at the time of purchase and its current price. Source: United Nations Statistical Database, 2005 figures. Orange juice options traders must pay close attention to seasons and weather forecasts. Trading orange juice options is advisable only for experienced traders who have sufficient knowledge in options trading. Factors impacting orange price and orange option valuations: Any agricultural commodity is affected by weather and disease. In orange juice options trading, the underlying asset is one FCOJ-A futures contract. Many scientists attribute increased hurricane activity in Florida to global warming. Deducting the 4.5 cents she paid as option premium, the net buy price is 134.5 cents/pound (137 + 2 - 4.5 = 134.5 cents). At the time of expiry, this call option, if in-the-money, will give her the right to take a long orange juice futures position which she can square off at existing market rates to lock the buy price. Futures trading in frozen concentrated orange juice started in 1945 and is claimed to be one of the reasons for oranges taking one of the top spots in U.S. crops. ETFs Plays On Orange Juice While there aren’t any exchange-traded products that offer direct exposure exclusively to orange juice prices, there are several ETFs that include orange juice exposure either through futures or indirectly through equities of companies in the food industry, including: She selects an option with strike price of 135 cents and expiry date of six months in the future. He pays upfront an option premium of 4 cents per pound (4 cents X 15,000 pounds=$600). The reduction in consumption can lead to price declines. The FCOJ contract is available for trade on the New York Board of Trade (NYBOT). Orange juice is one of the few actively traded contracts in the futures markets that’s based on a tropical fruit. Assume it is January and frozen concentrated orange juice is currently trading at 135 cents/pound (the spot price). The concentration of most of the crop in a single location and the possibilities of extreme weather events, as well as similar conditions in Brazil, have led to high uncertainty and hence high volatility in orange prices. Buying the put option will give the orange farmer the right, but not the obligation, to take a short position in one orange juice futures contract at the predetermined price of 135 cents at the time of option expiry. Agriculture ETFs can be used to diversify or stabilize a portfolio, hedge risk to certain countries dependent on an agriculture commodity, or even create a new investing opportunity. January, March, May, July, September, November. In orange juice options trading, the underlying asset is one FCOJ-A futures contract. 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